Finding your 'magic number' for retirement savings

Conventional wisdom has been that saving for a $1 million nest egg, or retirement income of 80 percent of your current salary, is a good safety net. But advisers say such broad generalizations often miss the mark given consumers' disparate incomes, life expectancies and other variables.

"The rules of thumb that are thrown around out there can do more harm than good," said Richard Stumpf, a certified financial planner in Wichita, Kansas.

One couple Stumpf works with, when they first came in, had been aggressively saving and picking riskier investments with that $1 million benchmark in mind. But they'd overestimated their needs. "When we ran the numbers, we discovered that they only needed an average 4 percent [earnings] to get to an appropriate number," he said.

For a different couple, however, Stumpf recommended saving for retirement income exceeding 100 percent of their current earnings.

"Their goal after retirement was to hit the road in an RV, which would be more expensive than their current lifestyle," he said.

Why you'll need to save less

A common mistake consumers make is assuming that they need income in retirement that matches or comes close to their current needs. But many current financial expenses change — you won't still be putting away, say, 10 percent of pay into a 401(k), nor will you be paying federal payroll taxes of about 7.65 percent, said Clark Randall, a certified financial planner in Dallas. "Right off the bat, you're saving money there," he said. Retirees may also eliminate costs for business attire, or commuting.

Zeroing out mortgages, car loans and other debts before retirement represents further savings.

"Everyone who is planning for retirement should aim to be mortgage-free when they walk out on the very last day," said Karin Maloney Stifler, a certified financial planner in Solon, Ohio. "The lower you can drive your fixed costs in retirement, the more options you'll have."

You'll still need cash for budget line items such as property taxes and maintenance, but nixing monthly debt payments leaves more assets to grow in retirement accounts.

Depending on how much you make, Social Security might replace as much as 60 percent or as little as 26 percent of your income, further reducing savings needs — although advisers suggest getting specific figures from the Social Security Administration in lieu of using those broad estimates. (Create an account at SSA.gov for expected monthly payouts based on your work history and expected retirement age.)

Why you'll need to save more

Although you might anticipate needing less in retirement, it doesn't do to calculate figures too conservatively. "You can never save too much," Stifler said. "Err on the side of saving more than you think you'll need."

There's a lot out of the individual saver's control — notably, inflation. "The numbers might look really nice right now, but are they still going to look good 10 or 15 years from now?" Stumpf said. Savings goals need room for earnings to be reinvested and outpace inflation over the course of a lifetime. "Otherwise, you're kidding yourself that you're going to be able to retire comfortably," he said.

Some new retirement expenses more than offset those eliminated. Consumers may be able to nix some life insurance, for example, but will likely need to consider long-term care insurance, Randall said.

Health-care costs are also a wild card. In 2012, the Employee Benefit Research Institute estimated that a 65-year-old man might need $70,000 in savings, and a woman of that age, $93,000, to have a 50 percent chance of having enough saved to cover health-care expenses in retirement.

Don't underestimate the lure of discretionary spending, either. "Nobody just wants to exist in retirement," said Carolyn McClanahan, a certified financial planner in Jacksonville, Florida. "You have the go-go, slow-go and no-go phases of retirement. In those initial years, people do spend more."

Budget for travel and hobbies to fill expanding leisure time, she said, while your health is still good.